Canadian National Divests Assets - Analyst Blog

By Zacks Equity Research,

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Canadian National ( CNI ) has recently announced the sale of  two segments of rail lines based in Toronto to Metrolinx, a governmental agency dealing in transportation business in Greater Toronto and Hamilton Area in Ontario, Canada. The deal is expected to generate approximately $310.5 million in sale proceeds for Canadian National.

We believe that the new deal will be beneficial for the company's cash flow as well as aid in rightsizing its infrastructural capabilities, thereby leading to cost efficiency.

The company expects to maintain high railroading (velocity, reliability, and asset utilization) standards and remain ahead of its peers, in terms of train speed and dwell time.

In addition, Canadian National is continuously seeking productivity initiatives to reduce costs and leverage its assets. The company consistently focuses on increasing its train productivity by accelerating the purchase of locomotives, which are equipped with distributed power capability that allows the company to run longer and more efficient trains, particularly in cold weather conditions.

Canadian National expects capital expenditure of C$1.75 billion for the full year, of which over $1 billion will be directed toward track and infrastructure improvement as well as productivity initiatives, approximately C$150 million toward acquisition of new freight cars and upgrading locomotive and around C$500 million for information technology and various new projects.

However, volatility in fuel costs, lower-utility coal shipments and competition from peers like Canadian Pacific Railway Ltd. ( CP ) remain near-term concerns.

We maintain our long-term Neutral recommendation on Canadian National. However, the stock holds a short-term (1-3 months) Hold rating, as represented by the Zacks #3 Rank.

CDN NATL RY CO ( CNI ): Free Stock Analysis Report
CDN PAC RLWY ( CP ): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CNI , CP

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